As of June 25, 2024, there will be a significant change to the capital gains tax law. The government has decided to increase the capital gains tax rate from the current 50% to 66.67%.
While capital gains tax does not apply to primary residences, it will increase substantially for investment properties such as buildings, houses, and condos purchased for investment purposes. For capital gains under $250,000, the tax rate will remain at 50%. However, for amounts exceeding $250,000, the tax rate will rise to 66.67%.
Capital Gains Tax Comparison
Capital Gains | Old Tax (Before June 25, 2024) | New Tax (After June 25, 2024) | Difference |
---|---|---|---|
$250,000 | $65,000 | $65,000 | 0% |
$300,000 | $78,000 | $82,160 | 5.33% |
$400,000 | $104,000 | $116,480 | 12.00% |
$500,000 | $130,000 | $150,800 | 16.00% |
$600,000 | $156,000 | $185,120 | 18.67% |
$700,000 | $182,000 | $219,440 | 20.57% |
$800,000 | $208,000 | $253,760 | 22.00% |
$900,000 | $234,000 | $288,080 | 23.11% |
$1,000,000 | $260,000 | $322,400 | 24.00% |
$1,500,000 | $390,000 | $494,000 | 26.67% |
$2,000,000 | $520,000 | $665,600 | 28.00% |
The Canadian government aims to target the wealthiest individuals with this tax increase. However, this change may discourage real estate sales and potentially negatively impact investment and entrepreneurship.
Broader Impact on the Market
This capital gains tax increase will apply to a variety of assets, including stocks, investment properties, real estate, venture businesses, corporations, and shares, potentially creating a negative ripple effect across the Canadian market. Real estate owners and investors, in particular, are expected to feel the brunt of this tax hike.
Although the government anticipates increased tax revenue from the hike, unintended consequences may arise. For instance, higher taxes may lead investors to reduce investments or seek tax avoidance strategies. Some investors have already started utilizing Vendor-Take-Back Mortgages (VTBs) to spread capital gains tax over five years, ensuring annual gains do not exceed $250,000. Consulting a mortgage broker or lawyer is highly recommended for such strategies.
Market Implications
The capital gains tax increase could discourage property owners and investors from selling their assets, potentially reducing market liquidity and slowing investment activity.
Opportunities Before June 25
On a positive note, buyers or investors able to close deals before June 24, 2024, may benefit from sellers offering better prices to finalize transactions before the tax hike.